Rise of the robots may hold back in­ter­est rates

The Pak Banker - - OPINION - Mark Gil­bert

The U.S. Fed­eral Re­serve still seems to be set to raise bor­row­ing costs later this year, prob­a­bly in Septem­ber. The Bank of Eng­land is try­ing to con­vince in­vestors that it, too, is poised to push up in­ter­est rates. I'm still wor­ried both may be se­duced into act­ing be­fore their economies jus­tify a move. They may be pro­pelled in­stead by psy­chol­ogy: Leav­ing rates near zero makes cen­tral bankers un­com­fort­able. As econ­o­mists at Royal Bank of Scot­land pointed out to­day, 15 mem­bers of the Or­ga­ni­za­tion for Eco­nomic Co­op­er­a­tion and De­vel­op­ment have raised in­ter­est rates since 2008; ev­ery sin­gle one has since re­versed those moves.

As econ­o­mists at Royal Bank of Scot­land pointed out to­day, 15 mem­bers of the Or­ga­ni­za­tion for Eco­nomic Co­op­er­a­tion and De­vel­op­ment have raised in­ter­est rates since 2008; ev­ery sin­gle one has since re­versed those moves. "There is a high bar right now to not act­ing," Dennis Lock­hart, pres­i­dent of the Fed­eral Re­serve Bank of At­lanta, told the Wall Street Jour­nal in an in­ter­view pub­lished on Tues­day, adding that it would take a "sig­nif­i­cant de­te­ri­o­ra­tion" in eco­nomic data to stop him from sup­port­ing a Septem­ber rate in­crease. Bank of Eng­land Gover­nor Mark Car­ney said on Thurs­day that the eco­nomic out­look is "con­sis­tent" with tighter mon­e­tary pol­icy.

One key eco­nomic mea­sure that's re­strained both the Fed and the Bank of Eng­land from push­ing the rate-rise but­ton is the lack of wage growth in both coun­tries. Cen­tral bankers are hop­ing that an earn­ings turn­around will free them from their cur­rent shack­les. The U.K. has en­joyed eight months of in­comes ex­ceed­ing in­fla­tion, although wages shrank on an in­fla­tion-ad­justed ba­sis al­most ev­ery month be­tween the mid­dle of 2008 and the start of the fourth quar­ter of last year, so there's a ton of ground to make up. U.S. wage growth, mean­time, has been stuck at an av­er­age of 2 per­cent for the past five years. While wages clearly aren't the only de­ter­mi­nant of the in­fla­tion out­look and the prospects for growth, they are one of the most ba­sic ways that the av­er­age con­sumer feels what's hap­pen­ing in the econ­omy. And maybe the puz­zle­ment cen­tral bankers have ex­pressed at the paucity of in­come in­creases isn't so puz­zling af­ter all. Maybe -- just maybe -- the much-wor­ried-about rise of the ma­chines is al­ready hav­ing a back­ground ef­fect in the la­bor mar­ket.

The num­ber of robots work­ing in fac­to­ries around the world is ex­pected to reach al­most 2 mil­lion by 2017, an in­crease of al­most 70 per­cent since 2011, ac­cord­ing to eco­nomic data com­piler Statista. World­wide sales of in­dus­trial robots have al­most dou­bled in the past five years, and surged by 26 per­cent last year to reach a record 225,000. It seems in­tu­itive that the more robots in busi­nesses and fac­to­ries, the less need to raise wages. And while the ser­vice in­dus­tries and the much-vaunted knowl­edge econ­omy aren't so easy to mech­a­nize, that may change as ma­chines get smarter and ar­ti­fi­cial in­tel­li­gence lives up to its prom­ise. The rise of the robots might be a rea­son not to raise in­ter­est rates.

Newspapers in English

Newspapers from Pakistan

© PressReader. All rights reserved.